Is Facebook Violating Antitrust Laws?

With the rise of Zynga (NASDAQ:ZNGA) came a rush of social games that were published on Facebook (NASDAQ:FB). In Zynga’s case, what was once a much-hyped business attracting a lot of positive investor attention is now something of a punching bag for IPO-based humor. The magic may have faded away, but there is still a considerable amount of business in social gaming.

A notable, if controversial, aspect of many social games is a virtual currency that users can either buy with cash or opt-in to advertising programs. There is a considerable market for digital sheep that ultimately cost players real-world money. To service this market, a number of virtual currency and payment-processing providers cropped up to work with developers and implement these aspects.

Kickflip, which does business as Gambit,was once the leader in providing this service to developers. Having fallen from grace, the company sued Facebook for allegedly breaking antitrust laws in the virtual currency market. Bloomberg reported that Facebook blacklisted companies like Gambit and forced developers to exclusively use its services in 2009 and 2010.

“Facebook leveraged its dominance in the social-game marketplace to control and dominate the separate market for virtual-currency services,” Kickflip lawyers said. “As the result of Facebook’s actions, Gambit’s business was destroyed.”

For its part, Kickflip has attracted negative attention from users who allege that the company did not award digital currency to customers after they purchased it. The company launched its Gambit engine in March of 2009. An article covering its launch said that its business split was roughly 40 percent Facebook, 25 percent MySpace, 25 percent destination sites, and 10 percent mobile.

In an interview with Inside Facebook, when asked about his reaction to Facebook’s initial test of their virtual currency system, co-founder Noah Kagan said, “Competition breeds innovation. Facebook has a lot of inherent value to bring, but how will they provide value specifically to game developers? I’m curious what additional value Facebook can produce that we can’t.”

Mobile game companies like Glu (NASDAQ:GLUU) might be interested in the case. Kickflip didn’t seem able to survive without Facebook. If that holds true for other payment solution companies, Glu faces an unfortunate lack of alternatives.